IMF Survey: IMF Develops New Template for Labor Market Analysis
September 24, 2012
- Template enables analysis of impact of various growth scenarios on jobs
- Allows conduct of other "what-if" analyses related to labor market
- Part of strengthened analysis by IMF of jobs and growth
Unprecedented high and persistent unemployment across the globe has called for strengthened analysis of labor markets in the context of macroeconomic surveillance.
NEW ECONOMIC MODEL
To support this effort, the IMF has developed a template that allows country teams to analyze and project key labor market indicators within a user-friendly and flexible framework.
According to the International Labour Organization, total world unemployment is expected to reach 202 million in 2012, up from 196 million in 2011. This will be roughly equivalent to the combined population of the United Kingdom, Switzerland, Mexico, and Australia. Plus, youth unemployment is forecast to reach 75 million this year, almost equivalent to the population of Turkey.
One region where unemployment has been persistently high for over two decades is the Middle East and North Africa (MENA). Realizing the urgent need to gain deeper insights into regional labor market developments, and in particular, the need to incorporate them consistently into economic surveillance, a staff team from the Middle East and Central Asia Department at the IMF has developed a template for analyzing the employment-growth nexus.
What does it do? The template, which is flexible enough to be customized to data and relevant macro-assumptions of any country, provides the researcher with a practical and transparent tool to derive the impact of various growth scenarios on employment/unemployment, as well as conduct other what-if analyses involving forecasts of labor market variables within the macroeconomic framework.
IMF Deputy Managing Director Min Zhu (l) with Research Department Advisor Prakash Loungani at launch of labor market template (IMF photo)
How is it done? The template draws on econometric analysis of the relationship between unemployment and growth to produce estimates of employment-growth elasticities. Estimation methodologies include both panel data and individual time-series approaches, allowing the user to quickly obtain estimates that apply for a group of benchmark countries—picked according to the user’s interest—as well as country-specific elasticities. Then, with inputs from the user, the template produces and completes a table of labor market outcomes under various scenarios.
These include a scenario that computes the average growth needed to reach an unemployment rate target, and another scenario that gives the required growth path for absorbing future entrants into the labor market.
The template also produces various charts: for example, a fan chart that plots different projections for employment growth and another chart showing four possible unemployment rate paths over the projection period using different parameters (see chart).
The template has been used by numerous country teams in their bilateral surveillance work. It offers them the first standardized, forward-looking tool with which to assess labor market developments and, therefore, better structure the discussions and engage more effectively with the authorities by translating growth forecasts into unemployment forecasts.
The template continues to benefit from further refinement and users’ feedback, including how to deal with missing data, enhanced estimation techniques, and differentiation of short- versus long-term links between growth and employment.